This time last year I was warning my rich “more brilliant than thou” neighbors that Washingon Mutual was going down. They mocked me and smoked another joint. One month later Wamu came down. My rich neighbors scrambled too late, losing face, much money, a sizeable chunk of their financal future, and another little chip of their false pride. Last summer and fall banks and brokerages were not the only things too big to fail. What also seemed too big to fail was the incredible sense of DENIAL that pervaded the country about what was coming.

Here is a riddle for you: When the small group of watchers who stand on the high hill gaze out to the sea, and they can clearly see the tsunami rolling in, and they can see the size of it, and they can clearly see that only the people who are already on “financial high ground” will survive, should they even bother to climb down the hill, risk their lives, run to the church, climb the steeple, and ring the bell? Will they expire in glory, trying to warn the world, like the good Tibetan monk in the movie trailer for 2012?

Are you good at figuring out riddles? Figure it out. Here is the story:

JPMorgan and Morgan Stanley are talking with other banks about a debtor-in-possession loan, used to fund a company’s operations after it seeks court protection from creditors, according to the people, who declined to be identified because the negotiations are private. CIT and its advisers, including Morgan Stanley and Evercore Partners Inc., are also trying to arrange rescue financing to avert bankruptcy, they said.

CIT may need as much as $6 billion to avoid filing for bankruptcy protection after the U.S. wouldn’t give the firm a second bailout, according to CreditSights Inc. A failure of CIT, which has almost $76 billion in assets, would be the biggest bank collapse by that measure since regulators seizedWashington Mutual Inc. in September.

“This thing doesn’t have a future,” CreditSights analyst David Hendler said yesterday in a telephone interview. “Anything is possible but the problem is not solvable anymore. They’re just in denial it’s finally over,” the New York-based analyst said referring to the rescue financing.

The century-old lender that finances about 1 million businesses from Dunkin’ Brands Inc. to Eddie Bauer Holdings Inc. is “continuing to evaluate alternatives” after failing to convince the U.S. government to back its debt, the New York- based company said July 16 in a statement.

CIT, which has reported $3 billion of losses in the last eight quarters, received $2.33 billion in funds from the U.S. Treasury in December and hasn’t been given access to the Federal Deposit Insurance Corp.’s debt-guarantee program.

Pacific Investment Management Co., CIT’s largest bondholder based on regulatory filings, was to host a call this week to discuss a debt exchange, and bondholders were considering hiring financial and legal advisers, said a person familiar with the discussions. The company hasn’t proposed an exchange offer.

CIT bondholders hired law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP and investment bank Houlihan Lokey Howard & Zukin to advise them, according to a person familiar with the matter who declined to be identified.

Bridge Loans

Thomas Lauria, a lawyer at White & Case LLP, said in an e- mail that a group of CIT creditors he represents offered to provide $3 billion in new loans to bridge CIT to an out-of-court restructuring or an orderly bankruptcy. He said the group was waiting for a response from CIT and didn’t name its members.

Lauria was the lawyer who represented Indiana pension funds that fought the sale of most of Chrysler LLC’s assets to a group including Fiat SpA, the U.S. and Canadian governments and a United Auto Workers benefit trust.

Bondholders held calls this week to discuss whether to swap some claims for equity to reduce indebtedness, according to a person familiar with the situation.

CIT’s $300 million of 6.875 percent notes due in November rose 7.5 cents on the dollar to 64 cents yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Shares rose 29 cents, or 71 percent, to 70 cents in composite trading on the New York Stock Exchange.

‘Ill-Prepared’

“It seems CIT was ill-prepared for this moment, so they’re scrambling,” said Scott Peltz, a managing director focused on restructuring at consulting firm RSM McGladrey Inc. “Unless you have all these bondholders holding hands and singing Kumbaya, I think they’re too far behind the eight ball to avoid filing.”

Another route for CIT to raise cash — selling parts of its business — might run afoul of bankruptcy laws. Asset sales need to be carefully handled, because if CIT later winds up in bankruptcy the purchaser could be accused of having robbed creditors of value due to them, lawyers said.

“A buyer will be liable if it buys assets at a steep discount,” said Michael Cook, a lawyer with Schulte Roth & Zabel LLP in New York. “That’s why skittish buyers tell the seller to go into Chapter 11 so they can buy the assets with the insurance of a court order blessing the sale.”

Even if the buyer does pay “reasonably equivalent value” outside of bankruptcy, unscrupulous creditors may sue to set aside the sale as a fraudulent “to squeeze more money out of the buyer,” he said.